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Lawyers across Canada should remain exempt from federal rules designed to crack down on money laundering, a B.C. judge has ruled, siding with the legal profession in a 10-year standoff with Ottawa over the legislation.

In a ruling issued this week, Madam Justice Laura Gerow of the B.C. Supreme Court said that forcing lawyers to submit to legislation aimed at tracking money laundering and the flow of cash to terrorists would override solicitor-client privilege and thus violate the Constitution.

The decision is a blow to the federal government's anti-money-laundering regime, which covers bankers and accountants but has exempted lawyers pending the outcome of this legal battle.

The federal Department of Finance said Friday that it is reviewing the decision. It has 30 days to file an appeal.

"We continue to work to ensure Canada's anti-money-laundering and anti-terrorist-financing system remains strong, protecting the stability and integrity of Canada's financial system," a department spokesman said in an e-mailed statement.

In court, the government argued that lawyers, who often use trust accounts to move around money for clients, are particularly vulnerable to being tempted by, or duped into, money-laundering schemes.

The anti-money-laundering rules would have required lawyers to collect and keep information about the identity of their clients, which investigators could later review. The legislation would also have allowed agents of the government's anti-money-laundering agency – FINTRAC, or the Financial Transactions and Reports Analysis Centre of Canada – to search law offices without a warrant.

Judge Gerow ruled both would violate Section 7 of the Charter of Rights and Freedoms by jeopardizing the liberty of lawyers, or their clients, in a way that offends the "principles of fundamental justice" because it would override solicitor-client privilege.

"It is clear from the [government's]submissions that lawyers are being required to collect information from their clients to establish a paper trail for law-enforcement agencies to access," the ruling reads.

The Federation of Law Societies of Canada, which represents the 14 self-governing bodies that oversee the country's legal profession, has been fighting the legislation since 2001, when it won injunctions that put on hold the application of the rules to lawyers. Ottawa then also backed off a proposal to force lawyers to report "suspicious transactions."

Meanwhile, the legal profession has developed its own new anti-money-laundering rules. Almost all of Canada's law societies – which are empowered to audit law-firm finances – limit the amount of cash lawyers can accept to $7,500, with some exceptions, including the payment of legal fees. Also, the law societies brought in their own rules – although less stringent than Ottawa's – to ensure lawyers try to verify the identification of their clients.

Lawyers who violate either the cash or client-identification rules can face professional discipline that results in fines, suspension or disbarment.

Judge Gerow concludes in her ruling that with these rules, Canada is fulfilling its commitments to the Financial Action Task Force, a group of 34 member countries set up to fight money laundering.

Ron MacDonald, president of the Federation of Law Societies of Canada, said the profession's opposition to the legislation is not about protecting lawyers who are up to no good.

"We've always supported the goals of the government to fight money laundering," Mr. MacDonald said. "Really, all we're saying is that the way it should be done, in order to protect the independence of the bar and solicitor-client privilege … we should be doing it."